It can be an emotional time when you split up with a partner, which makes it even harder to make sensible financial decisions. Rather than thinking through options and making a long-term financial plan, people often feel desperate to end the misery of an unhappy relationship as soon as possible.
Although this is natural, it is not necessarily the best route. Divorce is a life-changing decision and when couples begin the process they are not always prepared for the emotional stress that accompanies the end of a partnership.
Diane Lowe* was 35 when her husband left her with two young daughters under three. She says: “Getting divorced was a difficult time emotionally and financially, because I was struggling to cope with the children being so young and I didn’t know if I would be able to keep our house.
“In the end, we sold our large house and I received most of the equity, so that I had a large enough deposit to buy another house for the children. I managed to live off savings until the children were old enough to attend nursery and school. Emotionally, it took five years to get my confidence back, but financially I just had to be tough from the start and budget as carefully as I could until the girls were old enough for me to get a part-time job.”
If you’re going through a divorce, you should ask your legal advisers to recommend a professional who can help you with your finances as soon as possible. Lloyds Bank also offers a personalised financial review for those in the middle of changes to their life circumstances.
“Many people may not have been involved in the finances in their relationship and so we work together with independent financial advisers and counsellors to help them understand their options,” says Lisa Burton-Durham, senior associate at Family Law Partners.
“If you have always planned for the future as a couple, it can be very hard to start taking financial decisions alone,” says Keith Churchouse, chartered financial planner and founder of Chapters Financial Ltd, a financial advisory firm. He is the author of Addicted to Wedding Cake, a guide to divorce written from his experience of being married three times and divorced twice, and has written a new book on recovering from divorce called Nagged, Tagged and Bagged.
“It is an extremely stressful time that can affect all areas of your life. What you need to remember, though, is that when you are splitting up you pay to argue, so try to keep the lines of communication open with your partner.”
An authoritative study from the Institute for Social and Economic Research (ISER) revealed between one-third and half of adults experiencing divorce and separation report levels of mental distress high enough to warrant further attention by their GP.
Churchouse says it is important amid the stress of divorce to take time to think over your finances. “A good way to cope if you wake up at three in the morning and can’t sleep is to write it all down. I sometimes advise clients to draw up a timeline so they are clear about where they are in the process. Divorce brings a rollercoaster of emotions – anger, rage, fear, misunderstanding – and all this can make it hard to act in a sensible financial way.”
Dr Sandi Mann, senior psychology lecturer at the University of Central Lancashire, says that sometimes our current “compensation culture” drives divorcing couples to take an adversarial approach to sorting out their finances.
“Some people want a clean break but others feel that they need to be compensated emotionally for the trauma of splitting up. It’s important to remind yourself what is important and think about the emotional connection you have with money in order to be clear about what you are trying to achieve,” she says.
In financial terms, if you have been used to two incomes then it may come as a shock to pay for all the household expenses alone. You will need to draw up a budget, either to manage on a lower income or to allocate resources if you are going to receive a large lump sum settlement or regular income from your former spouse.
Make sure you keep up to date with all utility and credit card bills so that your credit rating is not affected.
Coping with divorce: a financial checklist:
- Change bank and building society accounts into a single name.
- Inform the HMRC about tax returns.
- Notify the local authority in order to get a council tax rebate if you are going to be living alone.
- Check whether you are entitled to any benefits.
According to Churchouse, the courts will ensure that children are protected and housed, and that investments – outstanding mortgage debt, equity in the house and other savings – will all be taken into account when assessing the settlement.
“When you are splitting assets think carefully about the value of pensions – since last April, the rules on using pension funds have changed; they are now viewed more as an accessible asset,” he says. “In some cases the value of the pension may be much higher than the equity in the house.”
In financial terms, it is largely irrelevant who divorces whom, says Burton-Durham. “Unless there is exceptionally bad behaviour, it is unlikely to make any difference on issues such as children and/or finances.”
Churchouse emphasises the importance of to trying to negotiate amicably with your partner, given how easily solicitors’ fees will eat away at your joint assets. “If you have prepared a letter or communication then sleep on it before you send it,” he advises. “You will know exactly what will most annoy your ex-partner. It might make you might feel good at the time of sending it, but it will ultimately cost you money if you can’t work things out in a civilised way.”
*Not her real name
For budgeting tips, money worries or a financial review visit Lloydsbank.com or call 0345 3000 000
